Thursday 5 August 2010 13.49 EDT
First published on Thursday 5 August 2010 13.49 EDT

Consumers are facing soaring car and home insurance premiums as two major insurance companies, Aviva and RSA, raise the cost of cover and warn of further rises to come.

Aviva, Britain's biggest insurer, said today it had imposed "double-digit" increases in motor premiums over the past six months while also increasing home insurance rates.

David McMillan, head of Aviva UK general insurance, said: "It is not surprising that rates have continued to harden this year. If you look at the underlying inflation in bodily injury claims that we have had in the market for the last three or four years, in many respects it is surprising rates didn't harden sooner."

He added: "There is no sign of a let-up in this inflation, so I expect this market phenomenon to continue."

RSA, which owns the More Than insurance brand, has raised its rates by 13% for motor policies and 4% for home cover. It said it "continues to take action on rates as and when necessary".

Fierce competition led many insurers to slash premiums in recent years, but rates are now rising again to what the industry regards as more normal levels. A sharp rise in claim costs is the main reason.

"Motor insurance is just a charity. The insurers are losing so much money and are trying to catch up. For every £1 in the door 115p goes out the door," said Panmure Gordon analyst Barrie Cornes.

Fraud is helping push car insurance premiums up at their fastest rate on record, according to the AA's latest British insurance premium index. Between April and June, premiums rocketed by more than 11%, the biggest increase since the survey started 16 years ago. AA president Edmund King has blamed a "21st century wave" of innovative fraudulent behaviour, such as providing false information and claiming for non-existent personal injuries, for the rise.

Aviva received a commercial boost from its high-profile TV ad campaign featuring comedian Paul Whitehouse. The group gained 100,000 more car insurance customers in the first half of the year. Advertising is said also to have benefited its annuities business.

Aviva raised its half-year dividend by 6% to 9.5p a share after slashing it by about a third last year. It reported a 21% increase in operating profits to £1.27bn, as sales of long-term savings products rose 4% to more than £20bn. The UK life and pensions business achieved record profits of £728m, with sales up 10%. General insurance returned to growth, with net written premiums rising 7% compared with the second half of 2009.

Aviva has shifted its business away from investment products towards pensions and life policies, which are more resilient in times of economic trouble. The insurer hopes to benefit from the $1.7tn sum estimated to be invested in life policies and pensions in the UK and Europe, the world's biggest market, over the next five years.

City analysts described the results as "sparkling", and Aviva shares jumped more than 7%, or 26.4p, to 394.3p.